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PO Box 1212 Tampa, FL 33601 Pinellas Updated November 2005
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RETURN TO NEWS INDEX
Real Estate Speculators Pull Back Lisa Tershak is offering to pay $5,500 in cash to anyone who buys her three-bedroom house in Leesburg, Va., near Washington.
She has reduced the investment property's asking price five times since July to $464,900, not far from the $450,000 she paid for it in March.
"There's too much inventory," said Tershak, 35. "Everyone felt the bust coming and decided to dump their properties at the same time."
Investors who helped fuel the U.S. housing boom by bidding up prices are now so desperate for buyers that some are offering cash bonuses in such markets as Washington. That's a sign the Federal Reserve is succeeding in removing some of what Chairman Alan Greenspan called "froth" from the market.
Inventories of unsold single-family homes are near a 17-year high as demand from speculators wanes and mortgage rates have risen more than a percentage point from a four-decade low reached in 2003.
"We're at the turning point," said Susan Wachter, professor of real estate at the University of Pennsylvania.
That would be welcomed by Fed policy-makers as a sign that they are succeeding in slowing the economy to a sustainable pace of growth, said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.
"We have seen a 65 basis-point rise in mortgage rates over the last nine weeks, and this does appear to be starting to slow mortgage purchase applications," Maki said. "I would interpret this as a sign that Fed tightening is gaining some traction in slowing the housing market."
The Fed has raised interest rates 12 times in the past year and a half to slow growth to a pace that won't kindle inflation. The average rate for a 30-year fixed mortgage, at 6.37 percent, has risen for 10 straight weeks, according to Freddie Mac, the second-biggest purchaser of U.S. mortgages. Applications for loans to purchase real estate are down 12 percent from the record set in June, the Mortgage Bankers Association reports.
Declining demand from speculators will help slow home sales to an annualized 6.77 million this quarter from a record 7.24 million in the third quarter, said David Berson, chief economist at Fannie Mae.
"Perhaps investors have decided this is the right time to move out of housing and into other assets," he said.
The falloff in demand is already being felt in regions such as Las Vegas, the fastest-growing housing market in the nation a year earlier.
Greg Sullivan, 42, a partner in Cash Now Vegas LLC, a Las Vegas company that buys homes from investors and resells them, said: "When home values were going up $10,000 a month, everyone wanted in. Now, all those properties are sitting empty."
Nationwide, home sales probably will decline in every quarter of 2006, Berson said. Sales in Maryland fell 3 percent in the third quarter from a year earlier, and Virginia sales dropped 3.6 percent, according to the National Association of Realtors.
"The speculator has been buying 10, 15, 20 percent of the homes in anticipation of flipping and turning them over to others," Bill Gross, manager of the world's biggest bond fund and chief investment officer at Pacific Investment Management Co., said in a Nov. 9 interview. "To the extent that higher interest rates increase the cost of carrying that speculation, they may become more reluctant to buy."
Investment buying accounted for almost a quarter of U.S. home transactions last year, according to the Realtors group. Investment-home purchases rose 14 percent to 1.8 million in 2004 from 1.57 million in 2003. The group doesn't have 2005 figures.
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